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Friday, September 28th, 2012
1:00pm (EST)
The bears are pushing the second wave of support as we head into the second half of trading, the weekend, and October. Futures were flat before the European markets opened and got progressively worse before the opening bell here at home.
Earnings and economic news are in focus today and things got ugly after the release of the Chicago PMI. The index fell below 50 to 49.7 versus forecasts for a print of 53, or unchanged from a month ago. This was the lowest reading since September 2009.
Shares of Research In Motion (RIMM, $7.78, up $0.64) are popping higher today after the company reported a narrower-than-expected loss for the quarter. RIMM posted a loss of 27 cents a share on revenue of $2.9 billion. The suit-and-ties were looking for red ink of 47 cents a share on sales of $2.5 billion.
This now makes 3-straight quarter the company has reported a loss but its cash reserves were actually up. Many analysts believed RIMM was burning through its cash reserves as it readies its BlackBerry10 for release in early 2013.
We actually looked at the stock last week for our Weekly Wrap portfolio as a covered call trade but we were a little unsure on what kind of numbers they would report and wanted to listen to RIMM’s conference call. Then again, we weren’t really concerned with their numbers because we penciled-in another loss but we do believe their intellectual properties have some value.
We looked at a possible option trade or two yesterday before our midday update and there were a number of ways we could have played RIMM’s earnings. Of course, this is after the fact but these strategies will help you down the road with other possible setups.
The RIMM October 8 calls (RIMM121020C00008000, $0.45, up $0.07) closed yesterday at 38 cents and traded to a high of 71 cents at the open this morning. The October 6 puts (RIMM121020P00006000, $0.05, down $0.20) ended the session at 25 cents.
With shares at $7 heading into yesterday’s close, a 10% move, or 70 cents, would not have been enough to get either of these options “in-the-money”. The strangle option trade, or “chicken trade”, could have been used if you were unsure on the direction shares might trade after the announcement. We then penciled-in a 15% move which would have moved shares more than a buck and shares did reach a peak of $8.20 but we decided to sit on the sidelines.
We will keep the stock on our Watch List as a possible long, or short, idea but RIMM still hasn’t proved anything and losses are expected to continue into the next quarter.
Although we may have missed on RIMM, we have been hot since mid-August as we have ran our recent streak to 17-out-of-19 winners. This includes 4 triple-digit returns of:
+193% on WellPoint (WLP) put options in 9 days
+113% on Monster Beverage (MNST) put options 8 days
+160% on Green Mountain Coffee Roasters (GMCR) call options in 24 hours
+100% on JC Penney (JCP) put options in 15 days
We plan to be aggressive during earnings season because we have had a tremendous year despite a choppy June and July. Our Closed Trades for 2012 are now at 132-43 for a 75% win rate for all of our trade recommendations. This includes our Weekly Wrap publication that is 24-0 for the year.
We have a lot to cover as we want to get to our current trades so that’s it for today.
The Dow is down 47 points to 13,439 while the S&P 500 is off by 6 points to 1,441. The Nasdaq is lower by 13 points to 3,123.
September was a sweet month for us and we will be back to go over the numbers on Sunday night with our Weekly Wrap and on Monday with our Daily update. We will also take a peak at historical October’s over the years to see what could be in store for us next month if the bulls fail to hold support. Until then, have a great weekend everyone!
Tags: chicken option trade, RIMM earnings, RIMM weekly options, strangle option trade
Posted in Earnings, Market Analysis, Market Commentary, strangle option trades | Comments Off
Thursday, April 12th, 2012
12:40pm (EST)
Futures were pointing towards a strong open this morning but took a hit after an unexpected spike in jobless claims and a mixed PPI (Producer Price Index) report.
Initial Claims came in at 380,000, up 13,000, versus expectations for 355,000, while Continuing Claims came in at 3.25 million versus a forecast for 3.33 million. Producer prices for the month of March were flat versus calls for an increase of 0.3%. The core reading was up 0.3% versus the expected increase of 0.2%.
In earnings news, Google (GOOG, $644.52, up $8.56) will report their quarterly numbers after the close and their results will likely have a huge impact on where Tech and the Nasdaq go from here. In January, shares fell from $639 to $585 after the company disappointed Wall Street with their results but in October 2011, shares rallied from $558 to $591, after Google announced better-than-expected earnings.
In July of 2011, shares of Google moved from $529 to $597 and in April of last year, shares fell from $578 to $530. Given the last 4 quarterly results, there is no reason to not believe shares won’t move another $50+ in after-hours trading tonight and on Thursday.
The near-term out-of-the-money “normal” options are expensive to trade on Google but there are WEEKLY options for those who want some action.
The April 700 calls (GOOG120413C00700000, $2.10, up $0.70) could be used to play a run to $700 while the April 600 puts (GOOG120413P00590000, $3.75, down $2.65) could be used for a possible break below $600. As you can see, these options are still pretty expensive and they expire THIS Friday.
If we used both options together as a “strangle option trade”, the total cost would be $5.85 which means we would need Google to be at $705 or better for us to be profitable if shares rise on an earnings beat. We would need the stock to test $595 or worse if there is a miss or lowered guidance. While we like the setup, we don’t like the risk/ reward because a 10 contract trade on each side would cost nearly $6,000. One contracts\ of each would cost $585.
We normally like to trade 10 or 20 contracts for all of our positions and sometimes we will trade 30 or 40 depending on price. However, we never like to leverage more than $1,000-$2,000 on any one position so this is what we mean when we say the options or premiums are expensive.
We are going to watch from the sidelines as Google takes the field after the close. While we do think a 7%-8% move is possible, anything less would crush the premiums if shares stayed in between $600-$700.
As far as the market, the Dow is up 147 points to 12,952 while the S&P 500 is higher by 15 points to 1,383. The Nasdaq is showing a 35 point pop and is at 3,051.
We opened 3 new trades today to go along with our current option plays so let’s go see where we are at. Subscribers, check the Members Area for the latest updates.
Tags: goog earnings, Google call options, Google strangle trade, Google Weekly options, strangle option trade
Posted in Earnings, Google, Market Analysis | Comments Off
Wednesday, October 26th, 2011
8:45am (EST)
Tuesday’s action showed nervousness by the bulls as they fretted over growing sentiment on Wall Street that the finance leaders of the European Union (EU) are having difficulty on agreeing what is the best course of action to deal with the debt crisis. Meanwhile, there were a number of disappointing corporate earnings announcements and economic news was less than stellar which weighed on the indexes. As a result, the bulls took a breather yesterday as Europe’s timetable to come up with a plan to deal was pushed back once again.
We expected some choppiness as the indexes battled their 200-day moving averages which can be hard to clear if momentum fades but the market held support for the most part. There will still be an EU meeting today (their 14th!) but there will be no official game plan in place by today’s close unless a miracle happens.
The Dow fell 207 points, or 1.7%, to settle at 11,706. The index opened in the red and hit a low of 11,682 as it slipped below the 11,800 level which will now serve as short-term resistance. The next area of support for the blue-chips is at 11,600 and then 11,350 if there is further selling pressure.
The S&P 500 gave back 25 points, or 2%, to finish at 1,229. The index slipped to a low of 1,226 which was still above support at 1,225. Should this level fall, the next test could be down to 1,200 while 1,250 remains resistance.
The Nasdaq dropped 61 points, or 2.3%, to close at 2,638. We were looking for 2,650 to hold but the low came in at 2,633. There is further risk down to 2,600 and then 2,550 if Tech weakens from here. The bulls are still shooting for a close above 2,700.
We have covered some interesting trades over the past month and although we are working on a 20-trade winning streak, we missed another great opportunity yesterday even though shares were on our Watch List a few weeks ago. As we have seen, and we will see again today, when momentum stocks lose their luster they can get pummeled.
First Solar (FSLR, $43.27, down $14.68) shares got canned for a 25% loss on Tuesday following the abrupt change in CEO’s. There was no specific reason given for the switch as the company said the move was effective immediately. Usually when something of this magnitude happens, other skeletons come out of the closet but we have noticed the weakness in shares.
We had listed another possible strangle option trade for First Solar, Friday before last, when shares were at $55 but we didn’t think another 30% down move was possible before the options expired. Wrong.
The November 40 puts (FSLR111119P00040000, $4.75, up $4.20) were at $1.15 when we profiled the trade along with the November 70 calls (FSLR111119C00070000, $0.40, down $0.90) which were at $1.75. Although we didn’t feel like shares would run to $70, we looked at the calls as insurance because we had penciled in a higher market for the rest of October.
Needles to say, the puts were up a whopping 780% yesterday while the calls dropped 70%. It was another round-trip trade that would have cost $2.90 to get into but the return would have been fat despite the call options taking a dive.
These types of strangle trades are also called “chicken trades” because you know a big move is coming but you aren’t sure which way the stock is going to go.
This morning, Amazon.com (AMZN, $227.15, down $10.46) is being taken to the woodshed after they missed Wall Street’s estimates. The company reported earnings after yesterday’s close and missed forecasts by 10 cents after occurring higher sales costs for the third-straight quarter.
Shares are at $200 in pre-market trading, down $27, and kissed the low $180’s in after-hours trading last night.
As far as futures, they are pointing towards a higher open despite the high-profile miss. Dow futures are up 71 points to 11,733 while the S&P 500 futures are higher by 8 points to 1,233. The Nasdaq 100 future are showing a 14 point pop and are at 2,336.
We have added 6 NEW TRADES to our Watch List and some of the names had heavy option trading in them yesterday. We have added a few put trades in the mix but we have listed some more call options as we look for the bulls to hold support and push the 200-day MA’s. If we decide to make one (or more) of them official trades, we will send out a Trade Alert before 11am so stay locked and loaded. Subscribers, check the Members Area for the updates.
Tags: chicken option trade, strangle option trade
Posted in Market Analysis, Market Commentary, strangle option trades | Comments Off
Monday, March 7th, 2011
1:05pm (EST)
The market opened slightly higher and was showing a little momentum as oil came off its highs of the session. There was news that Libyan President Gadhafi was looking to negotiate a deal with rebel forces for his safe departure from the country but those rumors haven’t been confirmed. This gave the bulls some hope the crisis could be resolved but the bears are attacking as the market is now trading well off its highs and is negative territory as we head into the second half of trading.
In Merger & Acquisition (M&A) news, Western Digital (WDC, $33.56, up $3.55) is up over 12% after the company announced it was acquiring Hitachi’s hard-disk drive business for nearly $4.3 billion in cash and stock. Normally, when a company buys out another, the acquiring company’s stock price will head lower but this deal is a little different. Western Digital will pay $3.5 billion in cash but is giving Hitachi 25 million of its shares, or 10%.
We did a big write-up in our Weekly Wrap on Western Digital in mid-January
“As for Western Digital, its HDDs (hard disk drive) are used in desktop computers, notebook computers, enterprise storage products, servers, workstations, video surveillance equipment, networking products, digital video recorders, satellite and cable set-top boxes, and external storage appliances. It also offers hard drives as stand-alone storage products for personal data backup. The iMac uses its HDD. And Mac sales are projected to double. The company also makes SSDs (solid state drives).
Although HDDs may eventually get replaced by SSDs, that won’t happen for at least several years. SSDs are primarily used in small devices such as the iPhone, iPod, and iPad. The Macbook Air is currently one of the few laptops using SSDs. Other laptops and desktops still use HDDs. Price for HDDs is still cheaper than SSDs of the equivalent memory and storage. And that will stay that way for some time with prices for both dropping. Storage demand is expected to stay strong with the increasing need for servers to store all the content being shared or steamed over the internet. PC demand is also expected to grow, too.
The technical picture also shows that a strong move upward may be developing.” (END)
The deal will give Western Digital’s a market share of 50% for HDD’s and pad its lead as top dog. Seagate Technologies (STX, $13.85, up $1.41) is second and has 30% covered, so, in essence, these two companies will own over three-quarters of the market pie. Don’t be surprised if some anti-trust issues pop-up.
As we head to press, the Dow is lower by 78 points to 12,091 while the S&P 500 is off by 12 points to 1,309. The Nasdaq is showing the most weakness and is down 49 points to 2,735.
Tags: best option trader, best trading signals, call options, chicken trade, Covered Calls, financial options advice, momentum options, Momentum stocks, option quotes, option signals, Option Trades, option trading, options broker, options mentoring, options newsletter, options prices, put options, stock broker, stock price, stock quotes, strangle option trade, WDC, winning option trades
Posted in Hot Stocks, Mergers and Acquisitions | Comments Off
Monday, March 7th, 2011
9:05am (EST)
The market made some wild swings last week as volatility picked up along with geopolitical concerns. The bulls started the week off with a victory but the bears floored them on Tuesday as the indexes fell 1.5% on average. The bulls made most of those losses back on Wednesday and Thursday which all led to Friday’s unemployment numbers which were fantastic.
Although there was a slight disappointment for a higher print for additional jobs, the market held up well and was basically flat until oil became a concern. Oil popped to a high of $105, up $3, which worried the heck out or a lot of investors who ran for cover before the weekend. Wall Street seemed nervous on how much higher oil prices would affect the economic recovery but we were more interested in watching support which held like a champ.
In fact, we said the final hour of trading was going to be interesting and the bulls made a nice comeback to score a weekly win, believe it or not.
The Dow was down 178 points at one point but staged a furious comeback as time ran down to the closing bell. We liked the effort going into the weekend. The index hit a low of 12,079 before rebounding and finishing at 12,170, down 88 points. For the week, the blue-chips gained 39 points, 0.3%, and we loved the close above 12,100 which we were hoping for on Friday. Resistance is at 12,200 and 12,350 this week.
The S&P 500 fell 10 points and settled at 1,321 after trading to a low of 1,312. We were looking for 1,325 to hold and then 1,300 but the bulls got half of the losses back before the close. For the week, the index added a point, or 0.1%, and needs to clear 1,325 before it can make an assault on 1,350.
The Nasdaq finished Friday at 2,784 (down 14 points) but had the smallest losses of the Big 3 indexes. Tech traded to a low of 2,768 and had trouble with the 2,800 level last week but 2,750 held. There is additional support at 2,700 but we have targeted Nasdaq 3,000 on a break above 2,850. For the week, the Nasdaq advanced 3 points, or 0.1%.
It is important that we talk about the downside though a little further. The turmoil and unrest in the Middle East got a little more serious as those loyal to Libyan leader Moammar Qadhafi battled rebels throughout the weekend. Some of the battles are taking place in the oil-rich eastern region of the country and the rebels have vowed victory or death. It’s that simple, and it comes down to Qaddafi and how far he is willing to push the envelope against his own people and how long those loyal to him remain that way. It also comes down to money, which is being choked, but Qaddafi still has enough to pay renegades and order air strikes on the rebels.
We also have to worry about the upcoming demonstrations and chaos which could rock Saudi Arabia this week. A “day of rage” is scheduled to take place there on Friday. These geopolitical events could weigh on the market and if oil continues to push higher we may have seen the market highs for the first half of the year as this could play out for a few months. If it weren’t for higher oil and a possible civil war in Libya, we would be 100% confident the bulls could rally the Dow to 13,000 by the end of April. But that is not the case.
The economic news had been pouring in at an incredibly good pace and there is a chance that higher oil prices can be absorbed by consumers who have paid off debt and saved for the last two years. However, right now there is an inverse relationship going on between the market and oil and it doesn’t appear like this is going to change anytime soon unless Qaddafi steps down.
The bottom line is watch Dow 12,000 and S&P 1,300. If these levels crack and the indexes close below these levels, then the bull market could be turning into a bear market. The good news is we love playing the downside and you will too. Remember, you can make just as much money on put options (bearish) as you can call options (bullish) so be prepared because it will be an easy read.
Despite the chaos, futures are slightly higher this morning despite oil adding another $2. Dow futures are higher by 14 points to 12,168 while the S&P 500 futures are up a half-point to 1,320. The Nasdaq 100 futures are showing a 7 point pop and are at 2,367.
Tags: best option trader, best trading signals, call options, chicken trade, Covered Calls, financial options advice, momentum options, Momentum stocks, option quotes, option signals, Option Trades, option trading, options broker, options mentoring, options newsletter, options prices, put options, stock broker, stock price, stock quotes, strangle option trade, winning option trades
Posted in Market Analysis, Market Commentary | Comments Off
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RIMM Surprises, Bears Push Second Wave
Friday, September 28th, 2012
1:00pm (EST)
The bears are pushing the second wave of support as we head into the second half of trading, the weekend, and October. Futures were flat before the European markets opened and got progressively worse before the opening bell here at home.
Earnings and economic news are in focus today and things got ugly after the release of the Chicago PMI. The index fell below 50 to 49.7 versus forecasts for a print of 53, or unchanged from a month ago. This was the lowest reading since September 2009.
Shares of Research In Motion (RIMM, $7.78, up $0.64) are popping higher today after the company reported a narrower-than-expected loss for the quarter. RIMM posted a loss of 27 cents a share on revenue of $2.9 billion. The suit-and-ties were looking for red ink of 47 cents a share on sales of $2.5 billion.
This now makes 3-straight quarter the company has reported a loss but its cash reserves were actually up. Many analysts believed RIMM was burning through its cash reserves as it readies its BlackBerry10 for release in early 2013.
We actually looked at the stock last week for our Weekly Wrap portfolio as a covered call trade but we were a little unsure on what kind of numbers they would report and wanted to listen to RIMM’s conference call. Then again, we weren’t really concerned with their numbers because we penciled-in another loss but we do believe their intellectual properties have some value.
We looked at a possible option trade or two yesterday before our midday update and there were a number of ways we could have played RIMM’s earnings. Of course, this is after the fact but these strategies will help you down the road with other possible setups.
The RIMM October 8 calls (RIMM121020C00008000, $0.45, up $0.07) closed yesterday at 38 cents and traded to a high of 71 cents at the open this morning. The October 6 puts (RIMM121020P00006000, $0.05, down $0.20) ended the session at 25 cents.
With shares at $7 heading into yesterday’s close, a 10% move, or 70 cents, would not have been enough to get either of these options “in-the-money”. The strangle option trade, or “chicken trade”, could have been used if you were unsure on the direction shares might trade after the announcement. We then penciled-in a 15% move which would have moved shares more than a buck and shares did reach a peak of $8.20 but we decided to sit on the sidelines.
We will keep the stock on our Watch List as a possible long, or short, idea but RIMM still hasn’t proved anything and losses are expected to continue into the next quarter.
Although we may have missed on RIMM, we have been hot since mid-August as we have ran our recent streak to 17-out-of-19 winners. This includes 4 triple-digit returns of:
+193% on WellPoint (WLP) put options in 9 days
+113% on Monster Beverage (MNST) put options 8 days
+160% on Green Mountain Coffee Roasters (GMCR) call options in 24 hours
+100% on JC Penney (JCP) put options in 15 days
We plan to be aggressive during earnings season because we have had a tremendous year despite a choppy June and July. Our Closed Trades for 2012 are now at 132-43 for a 75% win rate for all of our trade recommendations. This includes our Weekly Wrap publication that is 24-0 for the year.
We have a lot to cover as we want to get to our current trades so that’s it for today.
The Dow is down 47 points to 13,439 while the S&P 500 is off by 6 points to 1,441. The Nasdaq is lower by 13 points to 3,123.
September was a sweet month for us and we will be back to go over the numbers on Sunday night with our Weekly Wrap and on Monday with our Daily update. We will also take a peak at historical October’s over the years to see what could be in store for us next month if the bulls fail to hold support. Until then, have a great weekend everyone!
Tags: chicken option trade, RIMM earnings, RIMM weekly options, strangle option trade
Posted in Earnings, Market Analysis, Market Commentary, strangle option trades | Comments Off